One of the most common problems MSMEs face is keeping their finances streamlined. For new businesses, the inflow and outflow of funds are not regulated, and this creates discrepancies. So, how can MSME businesses get funds to regulate their finances through loans for MSMEs? Let’s read ahead to find out about factors to consider while applying loan for MSME, documentation, eligibility, and how it can help you.
Loan for MSME
A loan for MSME is a credit facility that is offered to MSMEs to scale up their business. It is given to startups, entrepreneurs, self-employed professionals, and such. The maximum loan amount offered can go as high as INR 2 Crore, which is ample for small businesses to improve their situation.
These loans are also known as MSME unsecured loans that are offered by financial institutions such as NBFCs, Banks and such. This capital helps in refilling the inventory, buying equipment, distributing salaries, paying the vendors and more. However, there are numerous factors you need to be considerate about when it comes to getting a loan for MSME. Some of these factors are:
1. Loan lender
2. Interest rate
3. Repayment tenure
5. Collateral requirement
Factors to Consider While Applying Loan for MSME
Here are some of the key factors that play a crucial loan when it comes to applying loan for MSME:
1. What exactly is the purpose of the loan? May it be equipment purchasing, inventory refilling, business expansion or such, you need to be clear about it. This will help you pick the right type of MSME unsecured loan and communicate your requirements more clearly to the lender.
2. Once you determine the purpose, you need to fix the amount that you need to loan. Consider factors such as cash flow projections, project costs, future growth plans and whether you can repay it in a timely manner or not. Applying for an accurate loan amount will prevent unnecessary borrowing or inadequate funding.
3. Carefully review the repayment terms, including the loan tenure and repayment schedule. Evaluate whether the repayment terms align with your business cash flow, ensuring that the instalment amounts are manageable within your budget. Longer loan tenures may reduce monthly payments but could result in higher interest costs over time.
4. Compare interest rates offered by different lenders and consider factors such as fixed or variable rates. Choose a loan with a competitive interest rate that suits your financial situation. Be aware that the interest rate may depend on factors such as your creditworthiness, business performance, and collateral provided.
5. Inquire about any additional fees and charges associated with the loan, such as processing fees, prepayment penalties, or documentation charges. Factor these costs into your loan assessment to have a comprehensive understanding of the overall borrowing costs.
6. Assess whether collateral is required for the loan and evaluate the assets you can provide as collateral. Understand the implications of using specific assets as collateral, including the risk of losing them in case of loan default. If the collateral is not available, explore options for collateral-free or unsecured loans.
7. Enquire about the eligibility criteria and documentation process before applying as well. Prepare everything in advance to make your approval rate more significant.
8. Research the reputation and credibility of the lender. Consider factors such as customer reviews, responsiveness, and customer support. Choose a lender that provides good customer service and is known for supporting MSMEs.
These were some of the key factors to take into consideration. All these points will help you secure a loan for MSME business.
Eligibility and Documentations
Here are the eligible entities that can apply for MSME unsecured loans or any SME loan scheme:
1. Self-employed professionals, women entrepreneurs, individuals, MSMEs, startups, people under SC/ ST/ OBC categories and other business entities
2. Public or private limited companies, limited liability partnerships, partnership firms, sole proprietorships, and such
1. Should be minimum 21 years at the time of application and maximum 65 years at the time loan matures.
2. Business vintage of minimum 1 year
3. Annual business turnover, which the lender will define (can vary from lender to lender)
4. Repayment history of showcasing financial stability
5. No previous records of loan default
6. Credit score to prove creditworthiness as it helps lenders consider whether the applicant is dependable or not.
1. Applicant’s and co-applicants’ KYC documents which includes passports, voter ID, Aadhaar card, driving license, utility bills, and such as per lender.
2. OBC/ SC/ ST proof
3. Additional documents required by the lender.
MSME Loan Scheme
There are various MSME loan schemes that businesses can go for. However, not all MSME loan schemes are suitable for all types of businesses, so be careful while you apply for an MSME loan scheme.
- With the plethora of information on loan for MSME, eligibility, tips to look out for and such, you can now apply for MSME unsecured loan to support your business. You can rely on HDFC Bank if you are looking for MSME loan. Connect with their representative today and get a loan.